2007 (12) TMI 20 - AT - Service Tax

Activities taken at site of customer as part of turnkey contract for design manufacture supply erection etc. not liable to tax under Consulting Engineer Service because no separate consideration is received for the same Manufacturer of engineering goods not liable to tax under relevant head

Issues Involved:
1. Classification of services provided by the appellant as "consulting engineering services."
2. Applicability of service tax on various activities performed by the appellant.
3. Validity of penalties imposed on the appellant company and its officials.

Detailed Analysis:

1. Classification of Services Provided by the Appellant as "Consulting Engineering Services":
The primary issue was whether the activities performed by the appellant, which included erection, installation, commissioning, and other post-clearance activities, could be classified under "consulting engineering services" for the purpose of service tax. The Commissioner argued that the broad definition of consulting engineers, which includes "directly or indirectly" rendering "any advice, consultancy or technical assistance," applied to the appellant's activities. The Commissioner emphasized that the appellant's expertise and the employment of professionally qualified engineers indicated that they were providing consulting engineering services.

2. Applicability of Service Tax on Various Activities Performed by the Appellant:
The appellant contended that their contracts were turnkey projects and could not be vivisected for service tax purposes. They argued that the activities performed were integral to the manufacturing and sale of their products and relied on multiple Tribunal decisions supporting this view. The Tribunal reviewed several cases, such as Daelim Industrial Co. Ltd., Larsen & Toubro Ltd., and others, where it was held that turnkey contracts could not be divided for the purpose of imposing service tax on design and engineering services separately. However, the Tribunal distinguished the present case from those precedents, noting that the appellant's activities were not part of an indivisible works contract but rather additional services provided to certain customers. Consequently, the Tribunal held that these activities were not integral to the manufacturing process and were subject to service tax.

3. Validity of Penalties Imposed on the Appellant Company and Its Officials:
The Commissioner imposed a penalty of Rs. 3,69,51,498/- under Section 78, which was reduced by the Tribunal to Rs. 1,84,75,749/-, equivalent to the duty evaded. The penalties under other sections on the appellant company were upheld. However, the penalties imposed on the General Manager (Finance) and the Company Secretary were set aside due to the lack of specific evidence of their involvement in the evasion.

Separate Judgments Delivered by the Judges:

Member (Technical):
The Member (Technical) upheld the demand of duty and interest, reduced the penalty under Section 78, and set aside the penalties on the officials. The Member emphasized that the appellant's activities at the customer's site were additional services and not part of the manufacturing process, making them liable for service tax.

Member (Judicial):
The Member (Judicial) disagreed with the Member (Technical) and argued that the appellant's activities were part of the turnkey project and integral to the sale of their goods. The Member (Judicial) held that the appellant was not liable for service tax under "consulting engineering services" and that the original order by the Dy. Commissioner, which dropped the proceedings, should be restored.

Majority Decision:
The matter was referred to a third Member due to the difference of opinion. The third Member (Vice-President) concluded that the appellant was not liable to pay service tax as consulting engineers, aligning with the Member (Judicial). The impugned order was set aside, and all appeals were allowed with consequential relief.

Final Order:
In view of the majority decision, the impugned order was set aside, and all appeals were allowed with consequential relief.

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